American Benefits Council
Benefits Byte

2014-021

March 13, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Pension Funding Stabilization Included in Unemployment Insurance Extension

Lawmakers in the U.S. Senate has reportedly reached agreement on a measure to temporarily extend long-term unemployment insurance (UI) for four months. To offset the federal revenue cost of this extension, the measure includes a temporary delay in the phase-out of the pension funding stabilization provision originally enacted in the 2012 transportation bill.

As we have previously reported, the Moving Ahead for Progress in the 21st Century (MAP-21) Act enacted in July 2012 included a provision, originally advanced by the Council, to ease the cost burden of pension plan sponsorship by stabilizing the interest rates associated with plan funding calculations. Essentially, the provision "smoothed out" the effect of historically and artificially low interest rates in recent years by constricting the segment rates used to determine funding status to be within 10 percent of a 25-year average of prior segment rates. The subsequent phase-out of the stabilization provision - under which the 10 percent corridor is gradually increased to 30 percent - has reduced the effectiveness of the measure to the point where many defined benefit plans face new funding challenges, leading the Council to advocate for an extension of the program.

The UI measure essentially follows the Council’s recommendation, delaying the phase-out until 2017:

If the calendar year is:

The applicable minimum percentage is:

The applicable maximum percentage is:

2012, 2013, 2014, 2015,

2016, or 2017

90%

110%

2018

85%

115%

2019

80%

120%

2020

75%

125%

After 2020

70%

130%

Because 2017 is the earliest year that pension interest rates could return to normal based on the Federal Reserve Board’s monetary approach, this provision matches congressional intent with the Federal Reserve Board’s announced policy. The provision effective date for this extension is for plan years beginning after 2012; however, there is a special rule that permits employers to elect whether to apply the new rule for 2013. The election not to adopt the new rule could apply for all purposes or only for benefit restrictions.

An additional revenue-raising provision allows prepayment of PBGC flat-rate premiums for up to five years. 

The Senate is expected to bring the bill to the floor quickly, perhaps as soon as the week of March 24th, but consideration in the House is less certain. The Council will continue to advocate for the inclusion of funding stabilization in a final measure. For more information, contact Diann Howland, vice president, legislative affairs, or Lynn Dudley, senior vice president, retirement and international benefits policy, at (202) 289-6700.



House Subcommittee Discusses Legislation Addressing Medicare Advantage Plans

The Health Subcommittee of the U.S. House of Representatives Energy and Commerce Committee, which shares jurisdiction over health care legislation, discussed a number of legislative measures at a March 13 hearing, addressing a variety of issues related to the Medicare Advantage program (MA, which covers Medicare-eligible seniors through private insurance) and Medicare Part D prescription drug plans.

As we have recently reported, the Centers for Medicare and Medicaid Services (CMS) recently proposed cuts in the 2015 rates for the MA program, with final rates to be set in April, after PPACA and subsequent payment changes resulted in a 6.7 percent rate reduction in 2014. The Council sent a letter to CMS in February expressing concern that “further rate reductions could detrimentally affect retirees in the form of higher out-of-pocket costs, less coverage and fewer provider options for retirees." The Council more recently joined with five other groups on a similar group letter to CMS on March 6.

A background memo released by Republican committee staff in conjunction with the subcommittee hearing cited similar concerns with prospective MA cuts, speculating that “[t]he impact of any new payment cuts may be seen by seniors in late October 2014, when they may face fewer choices or higher costs during the open enrollment period for 2015 Medicare Advantage coverage.”

Additionally, as we reported in the March 10 Benefits Byte, CMS announced on March 10 that it will not finalize certain elements of proposed regulations addressing MA and Medicare Part D plans. In particular, the agency will not finalize proposals to lift the “protected class” definition on three drug classes, to set standards on Medicare Part D plans’ requirements to participate in preferred pharmacy networks, to reduce the number of Part D plans a sponsor may offer, and clarifications to the non-interference provisions. The Council had recommended setting aside these provisions in a March 7 letter. The agency will, however, finalize proposals related to consumer protections, anti-fraud provisions that have bipartisan support, and transparency  after taking into consideration the comments received during the public comment period.

During the hearing, the subcommittee heard from the sponsors of the following measures:

Subcommittee Democrats expressed frustration during the hearing that only Republican-sponsored measures were discussed during the hearing, with Ranking Democrat Frank Pallone (D-NJ) noting that his own bill, the Medicare Prescription Drug Integrity Act (H.R. 2960), would require sponsors of Medicare prescription drug plans to implement procedures to prevent fraud and abuse.

The subcommittee also heard testimony from a panel of expert witnesses including:

  • Mitchell Lew, CEO and chief medical officer of Prospect Medical Systems
  • Glenn Giese, principal at Oliver Wyman Consulting Actuaries
  • Frank Little, a Medicare beneficiary with a Medicare Advantage plan
  • Judith Stein, executive director for the Center for Medicare Advocacy
  • Paul N. Van de Water, senior fellow at the Center on Budget and Policy Priorities 

The Council will continue to monitor legislative activity in this area and the regulatory agencies for any additional guidance on MA plans or Medicare Part D programs. For more information, contact Kathryn Wilber, senior counsel, health policy at (202) 289-6700.



The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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